Monthly Currency Report – February 2023

Tuesday 28th February – The Pound (GBP) experienced a rally as optimism surrounding PM Rishi Sunak’s ‘Windsor Framework’ continued to grow. As investors and analysts delved into the details of the new deal, hopes for a stronger UK-EU trade relationship boosted Sterling sentiment.


The Euro (EUR) had a mixed day in trading, but was supported by bets on further tightening by the European Central Bank (ECB). With the increase in inflation in France and Spain, there is mounting pressure on the ECB to pursue further tightening. However, a mixed market mood prevented the single currency from capitalising on these gains.

On the other hand, the US Dollar (USD) struggled yesterday, following the release of February’s consumer confidence index. The index came in at 102.9, far below the expected print of 108.5, indicating a decline in confidence from US households. Inflation expectations also fell to 6.3%, easing some of the pressure on the Federal Reserve.

Monday 27th February

The Pound (GBP) gained ground as PM Rishi Sunak announced a new deal on the Northern Ireland Protocol, known as the ‘Windsor Framework.’ This deal helped to avoid further tensions between the UK and Europe, boosting investor confidence in Sterling.

The Euro (EUR) traded within a tight range on Monday, following the release of the Eurozone’s economic sentiment index for February. The index fell to 99.7, lower than expectations for a rise above the long-term average of 101, due to concerns about high inflation. Analysts cautioned that the data may signal a slowdown in Eurozone growth during the first quarter, leading to weakness in the single currency.

The US Dollar (USD) struggled on Monday, as durable goods orders data for January printed worse than expected, with a monthly decline of 4.5% versus the forecasted 4% fall. This, coupled with a mixed market sentiment, kept the safe-haven Greenback on the back foot. The Dallas Fed manufacturing index also slipped to -13.5, adding to the negative outlook for the USD.

Friday 24th February On Friday, the direction of the Pound (GBP) remained uncertain as the UK lacked significant economic data. Market sentiment leaned towards risk aversion, causing the Pound to fall against its safer peers while gaining against riskier ones.

The Euro initially stumbled, but managed to recover towards the end of the trading week. However, Germany’s final GDP reading for Q4 2022 came in worse than expected, resulting in a 0.4% contraction that weighed on the single currency. Despite this, hawkish comments from ECB policymaker Joachim Nagel boosted the Euro’s performance against its weaker counterparts.

Meanwhile, the safe-haven US Dollar benefited from risk aversion, posting gains throughout the day. This was further boosted by an unexpected increase in the core PCE price index, the Federal Reserve’s preferred measure of inflation, which strengthened the USD even more. The market responded by betting on more interest rate hikes, leading to increased strength in the US Dollar.

Thursday 23rd February

Despite Catherine Mann, one of the Bank of England’s most hawkish policymakers, calling for more tightening, the Pound struggled yesterday. Investors largely ignored her comments and instead focused on domestic concerns such as food shortages and the lack of progress on the Northern Ireland Protocol deal, which dented Sterling’s appeal.

The Euro had a muted performance despite the Eurozone’s final CPI reading, which showed unexpectedly higher core inflation. This could prompt the European Central Bank (ECB) to take more action. Additionally, worries about increased attacks along Ukraine’s eastern frontline put pressure on EUR exchange rates. However, the safer single currency managed to gain against its weaker counterparts as market sentiment turned sour in the afternoon.

The US Dollar continued to strengthen yesterday, buoyed by the tailwinds of the Federal Reserve’s hawkish meeting minutes from Wednesday evening. Despite mixed data showing a fall in jobless claims but a lower revised second GDP growth estimate, a hawkish speech from the Fed in the afternoon propelled the USD further.

Wednesday 22nd February

The Pound traded without a clear direction as there was a lack of significant UK economic data to steer it. Despite enjoying some tailwinds from the previous day’s PMI results, Brexit uncertainty prevented GBP from making significant gains.

The Euro also had a fluctuating performance, mostly moving sideways but posting losses against its stronger peers. The lacklustre performance may have been influenced by a below-forecast rise in Germany’s business climate indicator, while Russia-Ukraine woes added pressure to the common currency.

The US Dollar strengthened yesterday as a downbeat market mood prompted gains for the risk-sensitive currency. Additionally, the minutes from the Federal Reserve’s latest policy meeting added to the USD’s gains as policymakers sounded hawkish, fueling expectations of continued interest rate hikes.

Tuesday 21st February

Yesterday, the Pound experienced a surge in value as unexpectedly strong private sector activity in the UK cheered GBP bulls. The latest PMIs for the country exceeded forecasts, with the services sector exhibiting a surprise return to growth this month. This result not only suggested a more resilient UK economy but also raised expectations for further monetary tightening from the Bank of England (BoE).

On the other hand, the Euro had mixed movement yesterday, slipping against its stronger peers due to positive economic data and Russia-Ukraine tensions that pulled the currency in two different directions. While the Eurozone PMIs and Germany’s ZEW economic sentiment index beat forecasts, fears of an escalation in Ukraine weighed down EUR exchange rates. Russian President Vladimir Putin delivered a hostile speech amid expectations of a new offensive this week.

The safe-haven US Dollar enjoyed a risk-off market mood yesterday as growing geopolitical tensions triggered bearish trade. However, the USD relinquished some of its gains in the afternoon, despite stronger-than-expected PMI results.

Monday 20th February

The Pound saw a decline in value as hopes of resolving the Northern Ireland Protocol dispute dissipated. Despite reports last week that a resolution may be reached this week, No. 10 stated that no deal had been finalized yet, leading to disappointment among GBP investors and a drop in the currency’s value.

The Euro was relatively quiet yesterday due to a risk-on mood and concerns about Russia-Ukraine tensions, which kept EUR investors on the defensive. Nonetheless, hawkish remarks from Olli Rehn of the European Central Bank (ECB) and an improvement in Eurozone consumer confidence may have limited the currency’s losses.

With US markets closed for the Presidents’ Day holiday, the US Dollar saw subdued trading yesterday. Although a moderately optimistic market mood put pressure on the safe-haven currency, expectations of Federal Reserve interest rate increases helped to mitigate USD’s losses.

Friday 17th February Last Friday, the Pound (GBP) experienced a rebound following an initial drop, as indications emerged that a significant Brexit matter might soon be resolved. UK PM Rishi Sunak met with European Union members in Northern Ireland, and many participants left the meeting with a sense of optimism, including Irish Premier Leo Varadkar, who expressed quiet confidence in an impending resolution. This development brought joy to GBP investors after a sluggish start to the day.

Meanwhile, the Euro (EUR) had a lacklustre performance in trading at the end of the week, despite the European Central Bank (ECB) delivering hawkish speeches that provided some support. Isabel Schnabel and Francois Villeroy de Galhau, both ECB policymakers, expressed concerns about persistent inflation. Schnabel also noted that the ECB would need to take more forceful measures if the economy’s response was weaker than expected. On

The US Dollar (USD) experienced fluctuations, initially receiving a boost from a decline in market sentiment. However, the safe-haven currency gave up most of its gains by the end of the session after a couple of Federal Reserve policymakers made dovish remarks.

Thursday 16th February

With little economic data available, the Pound (GBP) faced downward pressure on speculation that the Bank of England (BoE) might halt its rate hikes. After Wednesday’s lower-than-anticipated Consumer Price Index (CPI) figures, investors and analysts adjusted their expectations. While a 25 basis point increase is projected for March, the possibility of further tightening from the BoE remains uncertain.

On Thursday, the Euro (EUR) saw mixed trading, despite European Central Bank (ECB) President Christine Lagarde’s pledge of an additional 50 basis point interest rate hike. Speaking to the European Parliament, President Lagarde reaffirmed the ECB’s goal of curbing inflation. However, analysts were uncertain about the ECB’s future direction. Some observers played down the ECB’s concerns about core inflation, leaving the shared currency in a state of uncertainty.

The US Dollar (USD) gained strength as the latest Producer Price Index (PPI) data revealed an above-anticipated increase. Moreover, jobless claims decreased by 1,000, suggesting a tight labour market. As a result, there is still room for the Federal Reserve to pursue monetary policy tightening since inflation seems to be more persistent than anticipated.

Wednesday 15th February

Yesterday, the Pound (GBP) experienced a significant drop after the release of January’s Consumer Price Index (CPI) figures, which were below expectations. With both headline and core inflation dropping considerably, GBP investors reduced their expectations of additional monetary tightening. This development may provide the Bank of England (BoE) with room to consider pausing its current cycle, much to the disappointment of GBP investors.

The Euro (EUR) made gains broadly, although it may have been limited by a larger-than-anticipated decline in industrial production. December’s data revealed a sharp slowdown in industrial output, which could have heightened recession worries among EUR investors. However, cautious trading kept the safer Euro afloat.

On Wednesday, the US Dollar (USD) gained ground as January’s retail sales figures were unexpectedly high, with a 3% increase compared to expectations of 1.8%. The data indicated a focus on supply-constrained goods, which could generate additional inflationary pressures. As a result, USD investors raised their expectations for more Federal Reserve rate hikes.

Tuesday 14th February

On Tuesday, the Pound (GBP) experienced a surge, propelled by the latest employment data, which indicated that the UK’s labour market remained tight. The unemployment rate stayed at 3.7%, below pre-pandemic levels, and more jobs were created than anticipated. Additionally, with wage growth above expectations, the Bank of England (BoE) faced increasing pressure to continue its efforts to contain inflation.

The Euro (EUR) was supported by a series of positive data releases across the Eurozone, including GDP estimates indicating expansion and a robust labour market in the Eurozone. Moreover, German wholesale prices ticked up, providing investors with the opportunity to renew their expectations for rate hikes.

The US Dollar (USD) gained ground following the release of January’s Consumer Price Index (CPI) data. Headline inflation, predicted to cool to 6.2%, was reported at 6.4%, dropping only by 0.1% from the previous month. As a result, USD investors wagered on additional rate hikes from the Federal Reserve, as inflation appears to be more persistent than anticipated.

Monday 13th February

On Monday, despite negative headlines in the UK, the Pound (GBP) gained ground on the back of a positive market sentiment. While business optimism appeared to stall, Sterling was supported by its sensitivity to market risk.

The Euro (EUR) was also boosted by the European Commission’s optimistic winter forecast, which suggested the Eurozone would avoid recession this year. However, gains in the common currency were limited by concerns about escalating tensions between Russia and Ukraine.

Meanwhile, the US Dollar (USD) struggled to make gains on Monday as a positive trading mood weighed on the safe-haven currency, although geopolitical tensions between the US and China helped cushion USD somewhat. Over the weekend, the US downed several objects in a rising conflict with China.

Friday 10th February

On Friday, the Pound Sterling got off to a positive start following the release of the UK’s latest GDP data, which showed that the country had escaped a recession at the end of the previous year. Despite this, the report highlighted some concerning trends such as ongoing high inflation, a rise in interest rates, and a drop in trade, which caused Sterling to falter against its stronger counterparts.

Meanwhile, worries about the escalating conflict between Russia and Ukraine weighed on the Euro. Russia launched a barrage of missiles, with one missile almost crossing the airspace of Romania, a member of NATO. However, the Euro regained some of its losses in the afternoon, driven by hawkish comments from ECB policymaker Isabel Schnabel who expressed support for further interest rate hikes.

The US Dollar traded without a clear direction on Friday due to the shifting market mood which led to some volatility. However, USD received a boost in the afternoon as the University of Michigan reported a larger-than-expected rise in consumer morale, with the consumer sentiment score rising from 64.9 to 66.4, surpassing the forecast of 65.

Thursday 9th February

The Pound Sterling received a boost from a positive market mood. Despite mixed messages from the Bank of England, with policymakers presenting differing views during their testimony to the Treasury Committee, GBP still managed to thrive.

On Thursday, the Euro started off on a downward trend due to a surprise decrease in Germany’s harmonised inflation rate, which dampened expectations for interest rate hikes from the European Central Bank. Nevertheless, the Euro’s decline was cushioned by its inverse relationship with a weakening US Dollar.

The US Dollar, known as a safe-haven currency, experienced some selling pressure early on due to the bullish tone in the markets that diminished its appeal. However, USD was able to recover some losses later in the day as new unemployment claims remained historically low, indicating a tight labour market and boosting the likelihood of interest rate increases from the Federal Reserve.

Wednesday 8th February

The Pound Sterling saw an improvement due to a slightly rosier outlook for the UK economy, as indicated by the latest economic outlook from the National Institute for Economic and Social Research (NIESR). The institute stated that the country is likely to dodge a recession this year.

The Euro faced a lack of direction, with no significant economic data from the Eurozone. Although it managed to rise against some of its riskier counterparts as the market sentiment became more cautious, the Euro was also impacted by its negative correlation with a rebounding US Dollar.

Initially, the safe-haven US Dollar faced some selling pressure due to a risk-on mood in the market, causing it to decline against many of its peers. However, the Greenback was able to recover later in the day, fuelled by hawkish comments from two Federal Reserve officials. Both policymakers suggested that further interest rate hikes are on the horizon and that the Fed may keep rates elevated for a longer period of time.

Tuesday 7th February

The Pound Sterling faced a decline in the morning as market expectations of a slowing policy from the Bank of England (BoE) continued to impact the currency. However, the Pound managed to recover during the latter half of the session, regaining losses without a clear driving force behind the movement.

The Euro was burdened from the start of trading by poor German data, with industrial production in the country plummeting by 3.1% in December, worse than the forecasted contraction of 0.7%. This further fueled fears of a German recession, weighing on the Euro’s appeal.

Amid the general risk-averse mood in the market, the safe-haven US Dollar strengthened. This trend was briefly disrupted by an unexpected boost in US economic optimism in the afternoon, causing the “Greenback” to trim its gains as risk appetite improved. The Federal Reserve Chair, Jerome Powell, also added to this trend with a speech that was less hawkish than the USD bulls had anticipated.

Monday 6th February

The Pound (GBP) experienced a rise in value as a result of a speech delivered by Catherine Mann, a Policymaker at the Bank of England (BoE). In her speech, Mann emphasised that the headline inflation rate showed no signs of slowing down and that there was room for additional interest rate increases. This caused an increase in GBP investments and a boost for the currency.

On the other hand, the Euro (EUR) had a mixed performance due to underwhelming retail sales data from December. Despite being forecasted to decrease, the sales growth contracted by 2.7%, making it difficult for the currency to gain traction in a cautious market environment.

Meanwhile, the US Dollar (USD) strengthened as a result of a risk-averse market and increased demand for safe-haven assets. Tensions between the US and China, following the reported downing of a Chinese spy balloon, also contributed to the increased demand for the USD.

Friday 3rd February

On Friday, the Pound’s value fluctuated as the market continued to weigh up the Bank of England’s policy stance. Investors appeared to be wary of Sterling after the BoE’s cautious guidance the previous day. Despite a better-than-expected performance from the final services index, the Pound still struggled during the trading session.

The Euro, however, gained strength last Friday as the composite and services indexes for January were published. However, the Euro faced restrictions on its upward potential due to its negative relationship with the US Dollar.

As the US Dollar saw a huge surge, the Euro was unable to fully capitalize on the positive news. The US Dollar experienced a major boost on Friday following the release of the non-farm payroll data and ISM non-manufacturing PMI for January. The data showed an unexpected creation of 517,000 jobs in January, surpassing the forecast of 185,000. Additionally, the services sector index showed significant growth with a reading of 55.2, further fueling speculation of a Federal Reserve interest rate hike and boosting the value of the US Dollar.

Thursday 2nd February

The Pound took a hit as the Bank of England announced a cautious interest rate hike. Although the increase of 50 basis points was in line with market expectations, the accompanying statement indicated that future rate hikes may be smaller, if they occur at all.

Meanwhile, the Euro struggled, experiencing some profit-taking after reaching multi-month highs ahead of the European Central Bank’s decision. The Euro also faced challenges as investors absorbed the ECB’s forward guidance, which signalled a potential slowdown in its policy tightening pace following a 50 basis point hike in March.

On the other hand, the US Dollar strengthened yesterday, rebounding f rom its overnight losses, following the Federal Reserve’s dovish stance in its recent interest rate decision. The recovery of the US Dollar may have been aided by the unexpected decrease in jobless claims and a robust comeback in US factory orders.

Wednesday 1st February

The Pound had a modest rise against some of its less robust counterparts yesterday but failed to make substantial gains following Tuesday’s decline. The movement of the Pound was restrained by caution surrounding today’s Bank of England interest rate decision and worries about a potential wave of public sector worker strikes.

The Euro, on the other hand, strengthened on Wednesday despite a larger-than-predicted slowdown in the Eurozone consumer price index. The Euro’s growth was driven by the surprising stability of the core inflation rate at 5.2%, instead of the expected decrease to 5.1%. This demonstrates that inflation remains persistent and may prompt a more aggressive approach from the European Central Bank today.

The US Dollar, meanwhile, weakened yesterday as traders awaited the Federal Reserve’s interest rate decision. The US Dollar was also kept in a defensive position by unsatisfactory economic data. Last night, the Fed raised rates by only a quarter of a percentage point as predicted. Despite Fed Chairman Jerome Powell’s efforts to dismiss expectations of a rate cut later in the year, USD exchange rates plummeted.



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